In 2014, Stu Libby wanted to do something about the long wait times at pharmacies. He thought there must be an easier way to pick up prescription drugs.

At the time, Libby was an ad-tech executive who had worked with companies like DoubleClick and Google. While he enjoyed the job, he wanted to produce work that made more of a meaningful impact.

He started to think about medication access and thought if he found going to the pharmacy frustrating on a fairly infrequent basis, how was it for people who needed constant prescription refills for chronic illnesses? Or seniors who found the pharmacy visits physically taxing?

"I wanted to address two key issues," Libby told Business Insider. "How can we improve access and cost to prescription medication?"

In 2015, he founded ZipDrug, initially as a drug-delivery service. The company has since evolved to focus on serving only seniors. Stu Libby, the CEO of ZipDrug. Photo courtesy of Stu Libby.

How ZipDrug works to deliver a different type of drug-delivery experience

ZipDrug is a pharmacy startup that is creating its own network of pharmacies to ship drugs to seniors in the US. The goal is to help seniors get their medicines at a lower price while also making it more convenient for them.

The company works only with Medicare Advantage plans, which are government-funded health-insurance plans for seniors. It pairs Medicare Advantage members with their own preferred pharmacy network. The health plan covers the cost, so members don't pay a fee, and the pharmacies do home delivery.

Since ZipDrug decided to pair only with Medicare Advantage around two years ago, Libby said the company has undergone "exponential growth." The health plans that ZipDrug works with cover more than 5 million Medicare Advantage members, or roughly 20% of the market, Libby said. Currently, about 200,000 of those people are eligible to enroll in ZipDrug, according to Libby.

Since the company was founded, it has raised $14.8 million. Libby said it planned to raise $5 million more this year to support recent growth. Its last funding round brought in $10.8 million from Runa Capital, Third Prime Capital & Compound Ventures.

The company operates in 24 states. ZipDrug is based in Manhattan, New York, but plans to move to a new office in Jersey City, New Jersey, by the end of the year.

Working with 'the best' pharmacies to create their own preferred pharmacy network

Libby hopes that what sets ZipDrug apart is the fact that the platform connects Medicare Advantage members with a variety of pharmacies that can do a good job of ensuring that they take their medications, he said.

Any pharmacy can join ZipDrug's platform as long as the pharmacy complies with ZipDrug's criteria, like fill rates, delivery completion, and the ability to move members to lower-cost prescriptions. The adherence scores are taken from Medicare data and updated regularly on ZipDrug's database.

ZipDrug uses the health plan's data to target customers who don't have the most cost-effective prescriptions and flags members who are overspending on medication. The company calls and writes to the customers, telling them to join ZipDrug's platform, where the startup can connect them to ZipDrug's preferred-pharmacy network.

The ZipDrug pharmacy then finds cheaper options of the same drug and also informs customers of cost-saving alternative therapies.

Because pharmacy performance is tracked, if pharmacies aren't performing well, ZipDrug discontinues the partnership. Right now, the company works with fewer than 200 independent pharmacies. The startup doesn't work with major chains like CVS, but Libby said he was open to the opportunity.

A new way to track the performance of health plans to deliver better service

After the Affordable Care Act was signed into law in 2010, the Centers for Medicare and Medicaid Services (CMS) created a star system to rate the different health plans on a one- to five-star range, five stars being the best rating. One of the areas that is rated is prescription-drug coverage. Carriers receive bonus payments from the government if they have high ratings.

Peter Manoogian, a partner at the consulting firm ZS Associates, told Business Insider that the rating system creates a greater incentive for the Medicare Advantage plans to think critically about how they deliver prescriptions to their Medicare Advantage members, making companies like ZipDrug appealing.

But as Manoogian pointed out, big players like CVS already offer Medicare Advantage plans that provide services similar to ZipDrug.

"I wonder from a growth perspective, will ZipDrug be able to break into larger plans for people, growing into a large share of Medicare Advantage plans," Manoogian said. "Can they compete with these behemoth plans?"

ZipDrug's strategy to compete with the big players like CVS

Libby said the goal of ZipDrug was to offer a variety of options to Medicare Advantage members from different independent pharmacies.

"We work with health plans to optimize their existing preferred networks," Libby said. "There is a lot of opportunity for us to collaborate with any preferred pharmacy if they meet our adherence criteria."

Viral Shah, ZipDrug's vice president of pharmacy services, said that because ZipDrug individually contacts Medicare Advantage members, it offers a "personal touch" and provides more treatment options for patients to opt in to, making patients more engaged and informed in their drug-treatment processes.

Reuters

Shah and Libby also pointed to their digital platform, which allows for quicker information processing.

The platform, called Care Control, integrates pharmacies into the ZipDrug software and allows ZipDrug to be integrated into the pharmacies' phone systems. When a patient agrees to be matched up with a pharmacy, the patient-enrollment team connects the patient and the new pharmacy for the enrollment call.

The transfer is live, and the Care Control platform updates the member's information at the time of the call.

With the online platform, the pharmacy also has access to the patient's medical history and can see what medications they are using, or where there are gaps in their treatment.

"So far, pairing up with the pharmacies has been a smooth ride because they see the value in what we're bringing them," Shah said. "The hardest part is educating the patient, but we track the progress regularly."

This article has been corrected to reflect that ZipDrug works with health plans that cover more than 5 million people.

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